Question

A bank offers two different types of interest on savings accounts.

Account one pays 5.5% simple interest.
Account two pays 5% interest compounded annually.

Deposits of $1,000 are made into one account of each type. No additional deposits or withdraws are made.

Which amount is closets to the difference in the interest earned in each account at the end of 5 years?

A) $275.00
B) $276.28
C) $1.28
D) $30.68

Answer 1

Answer:

R=5.5%, P=$1000, T=5yrs

I=PRT/100

I=5.5×1000×5/100

I=$275.00 for the account one, the account two will be $250.00 by comparing, the account one is close to the interest

Answer 2

The amount is closets to the difference in the interest earned in each account at the end of 5 years is $275.00

A bank offers two different types of interest on savings accounts.

R=5.5%, P=$1000, T=5 yrs

Account one pays 5.5% simple interest.

Account two pays 5% interest compounded annually.

deposit = 1000$

What is the formula for the simple interest

$I=PRT/100$.....(1)

I=$275.00 for the account one

Therefore

The closet to the simple interest earned in 5 years is $275.00.

The interest earned and be determined using the compound interest formula as follows:

What is the formula for compound interest

$Compound interest = P(1 + R)^T - P$....................... (2)

Where;

P = Principal = $1,000

R = interest rate = 5%, or 0.05

T = term = 5

Substituting the values into equation (2), we have:

$Compound interest \\\\= 1,000(1 + 0.05)^5 - 1,000 \\\\= ( 1,000 * 1.05^5) - 1,000\\\\ = ( 1,000 * 1.2762815625) - 1,000 \\\\= 1,276.28 - 1,000 \\\\= 276.28$

Therefore,

The closet to the compound interest earned in 5 years is $276.28.

Therefore

The amount is closets to the difference in the interest earned in each account at the end of 5 years is $275.00

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